Dynamic Vs. Static Segmentation: Who are Your Real Competitors?
By Ravneet Bhandari, Chief Executive Officer, LodgIQ
Revenue managers spend considerable time observing and reviewing their competitive set. After all, they've had historical success looking at the hotels with similar pricing and amenities. It's been the stalwart approach to decoding the price forecasting puzzle. As an industry, we've commonly accepted this is the right way to do things.
But be warned, this approach is like looking at a spectacular mountain. Every angle around the mountain looks different to the observer, with each view revealing bite sized pieces of the overall picture. The reader starts with a full-page image, but when seen from another angle, an entirely different picture is revealed. Revenue managers are so busy looking at their competition through a 'partial' image, they cannot see the full picture.
Conversely, hotel guests see the full mountain, and with it, an entirely different picture emerges. When your potential customers are looking for a hotel room, they're not limited to one view, they work their way around the proverbial mountain. They see the full array of hotels in a wider spectrum of pricing, amenities and other offerings. That means, customer stay decisions are based on many more factors than what the typical revenue manager usually considers.
Customers might be unaware of the difference is between an Upscale hotel and an Upper Upscale hotel, or Upper Midscale vs. Midscale, or even Upper Midscale vs. Upscale. Therefore, the entire notion of chain scales is partially irrelevant to the potential customer, rendering the idea of static segmentation moot. Yet, we are hyper focused on the category in which our hotels have been subjectively placed.
By formulating a revenue management strategy with a static segmentation mindset, you're inadvertently tricking yourself into believing you're making decisions based upon accurate and complete information. That's a red herring distracting decision makers from the truth; to deliver the most revenue to the hotel, and flow the most dollars to the bottom line, revenue managers must stop making siloed decisions and take a more fluid approach through dynamic segmentation. That means rethinking conventional revenue management approaches. A well-conceived revenue management strategy is about finding the right mix of business for a specific period of time and that mix of business is guaranteed to change often, because the number, and types of customers coming to your town at any given time is continually in flux.
Who is Your Competitive Set?
Traditionally, the average hotelier considers anywhere between three and six other hotels as comp set competitors. The difficulty comes in when you want to benchmark yourself, but the information STR provides, for example, doesn't necessarily include all hotels in which you compete against. Some competitors may not submit information, and others are simply not subscribed to STR's service. For example, most independent and boutique style hotels keep their information proprietary. Therefore, it becomes challenging to accurately benchmark your hotel against industry reports and just because a hotel is not included in the report, doesn't mean it isn't your competitor.
This is just one example of challenging the sensibility of a static approach to segmentation. Here's another example. Say a hotel that's a direct competitor is sold out on a particular night. Does that mean they are no longer a competitor? If that's the case, then an operator must conclude they needn't worry about finding business, because it will automatically arrive at their doorstep since that other hotel is booked. Of course, that's nonsense. And that's nonsense because when one competitor is removed from the marketplace, another one fills the space. That's the nature of the lodging universe, and something we too easily forget.
Your would-be customer is looking at many factors beyond price, such as location, amenities, reviews, loyalty club benefits, newness of the property, and resort fees, and most definitely beyond hotels you commonly consider competitors. Truth is, when guests book hotels, especially if it's their first time into a city or destination, they will go through a filtering process. Filters can be things like proximity to a landmark, kids facilities, trendy, reviews and star rating. Whilst the weighting of those filters changes depending on the trip, the filters themselves are generally static within a person.
Therefore, you too must put on the mask of a potential guest and see competition the way they choose to book a hotel. Dynamic segmentation allows you to do that along with factoring in all these points when determining your pricing strategy, because your perceived comp set is only a portion of your current or potential audience.
How Guests Think About the Booking Experience
Of course, there is the loyalty club customer that will book your hotel regularly. But most do not fit that specific profile. In fact, even if a customer is a loyal rewards club member with a specific hotel company, keeping in mind that each offers a panoply of brands, your guest is choosing a hotel option based on constantly shifting criteria and therefore no longer making your hotel a guaranteed book.
Hotels must think about being visible to the potential guest during the 'moment that matters.' That is, be front of mind when the potential guest is finally ready to secure a room and become a guest. Today's guest doesn't immediately decide where to stay, rather they research and consume 'digital moments' of information. Per a study from Luth Research, 87% of those moments are explored via a mobile device (moments can be videos watched, websites visited, blogs read), which is further proof of the heavy importance on a hotel being fully web-optimized, otherwise it will be immediately nixed from the competition.
Depending on the purpose of the trip, some of your potential guests' key needs change, which reshuffles their stay priorities. Whilst the main key filters that influence their decisions still apply, the weighting of the factors change and other factors might be added over time. For example, a family headed on a vacation may heavily weight a kids' club into their decision. But when the same couple leaves the kids at home, suddenly the kids club becomes less important and other factors such as spa, a high end romantic restaurant may become important.
The New Rules, AKA Embracing Dynamic Segmentation
Because price is no longer the dominant customer decision making factor, it's critical to utilize dynamic segmentation to create the perfect business mix for any given night. Essentially, tonight's customers are not next week's customers, and must be considered mutually exclusive from each other.
Perhaps one week there's some major events in town, while the next week, nothing. That radically alters your approach to capturing maximum revenue from each time period and it also means you must continually reshape the image of what properties are actually competition during a specific moment in time. Some weeks that may mean grabbing customers from segments traditionally considered higher up the chain scale, and vice versa - grabbing customers traditionally considered lower down the chain scale.
It's like boxing, you fight in a specific weight class, but if you gain or lose some pounds, then you're suddenly fighting in a totally different segment. For the hotelier, it means some weeks you're fighting in higher price points, while other times, you're duking it out at lower price points. Though some can be shy about reaching down the proverbial weight class, others find it a valuable tool to create fervent brand ambassadors. By embracing this mentality it allows the hoteliers to increase visibility and potentially reach audiences that would have not otherwise considered to stay at the hotel.
If a hotel is competing at a much lower pricing category, then it's important to consider the criteria of the optimal guest. For example, during a particularly fallow period, a luxury hotel created a promotion that included breakfast for $1, but guests still had to spend $400 a night to receive that discounted breakfast, which normally sold for more than $40 per person. The hotel successfully drove business by getting more families to take advantage of an incredible offer without affecting rate stability. By looking beyond its typical comp set with dynamic segmentation, the property connected with a new group of customers that were valuable during a specific time.
Therefore, an hotelier may want to consider setting a targeted guest offering that has a higher chance of conversions before a goal is set. For example, if you have a forecast of 70% of goal revenue, you may choose to not discriminate about how to get to 80%, but after, you may choose to curtail that guest benefit as revenue soars upwards.
Also, create ads geared to specific market segments you're interested in attracting. One hotel in Bali, for example, offered vastly different ads directed to two very distinct markets; the romance traveler, and families. The property's management had success capturing both groups, because each ad message was well crafted to a specific audience and for that property, it helped generate business at the hotel, bringing in ancillary daytime revenue from families, and during the evening and late night, revenue was achieved from couples. Without dynamic segmentation, this property would have financially obstructed itself by appealing to a narrower audience.
Dynamic segmentation allows you to better understand how your customers consider the booking process plus, it more seamlessly opens you up to options and opportunities otherwise unavailable to you with a static segmentation approach. It's like that mountain, it looks vastly different depending on how you look at it. Your customer is seeing a vastly different set of lodging opportunities than you've traditionally realized. Walk around that mountain and you'll get a complete image of your hotel's financial potential.
Mr. Bhandari is the Founder and CEO of LodgIQ™; a start-up dedicated to providing advanced revenue optimization technologies to the travel industry. Mr. Bhandari was the first-ever Head of Revenue Management for Hyatt International, and subsequently for Caesars Entertainment, and is credited with creating and leading the integrated discipline of Revenue Strategy, Marketing and Technology for Trump Entertainment Resorts. He also served as an Executive Consultant for Starwood Capital, where he advised on, and managed various aspects of business strategy and portfolio optimization for Louvre Hotels. Most recently, he was the Chief Commercial Officer for Nor1 Inc. Mr. Bhandari can be contacted at 646-453-7699 or showme@LodgIQ.com Extended Bio...
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